Half Year 2015 Results

Half Year 2015 Results

Letter to shareholders LifeWatch First Half Highlights Revenue growth of 9.1% to USD 52.5 million Above-market growth of over 12% in core monitoring services resulting in market share gains Substantial increase in profitability as efficiency measures bear fruit EBITDA margin of 13.8% achieved Net profit of USD 1.9 million vs. net loss of USD 4.7 million in H1 2014 Full-year guidance reiterated Dear shareholders, LifeWatch AG is pleased to report on good progress during the first half of 2015. In total, revenues during the first six months amounted to USD 52.5 million, an increase of 9.1% compared to the prior year period. Monitoring services (99.7% of revenues) grew by 12.1%, clearly outperforming the market average and thus resulting in market share gains. During the first half year, our US-based subsidiary LifeWatch Services Inc. signed 40 new or amended contracts, underpinning our brand and sales force successes. Device sales declined to USD 0.2 million due to delivery delays into the second half of 2015. The gross profit margin amounted to 52.8% versus 52.1% a year earlier. We expect the gross margin to continue to expand mid-term as on-going cost and efficiency measures, product mix improvements and new project launches take effect. Substantial improvement in operating profitability Our operating profitability improved substantially thanks to the positive impact of the restructuring and productivity measures that we implemented over the past year. As such, EBITDA during the first half year reached USD 7.2 million (H1 2014 LBITDA of USD 1.5 million), equivalent to an EBITDA margin of 13.8%, and EBIT amounted to USD 3.8 million (EBIT margin of 7.3%), marking the highest levels since the first half of 2009. Significant progress was achieved in Sales & Marketing thanks to sales force optimization and territory realignment, resulting in an 800 bps reduction to 18% of revenues (H1 2014: 26%). Likewise, the reorganization of the R&D activities during the second half of 2014 as well as the capitalization of some development costs led to a 300 bps reduction in R&D to 3.8% of revenues. Without capitalization, R&D expenses would represent 5.7% of revenues (H1 2014: 8%). Thanks to these substantial cost savings, together with slightly lower General & Administration costs, the absence of restructuring charges and despite a higher tax charge, LifeWatch was able to achieve a positive net income of USD 1.94 million during the first half of 2015, compared to a net loss of USD 4.72 million during the prior period. As a result of this good operating performance, the company generated a cash flow from operations of USD 4.2 million during the first six months of 2015, against a cash drain of USD 2.8 million during H1 2014. The equity ratio stood at 54.3% as of June 30, 2015 (53.4% as of December 31, 2014). 2

Letter to shareholders On-going development and market activities As previously announced, development activities are continuing on both our cardiac and vital signs monitoring patches. The pilot trials for the vital signs monitoring system are on-going with two new clinics being added in September, one in the United States and one in Switzerland. The FDA s enforcement of its new guidances on medical devices Design Considerations for Devices Indicated for Home Use and Mobile Medical Applications has resulted in unexpected minor delays in obtaining the requisite FDA clearances for LifeWatch s cutting-edge technologies. Clearance for the vital signs monitoring system is however still expected later this year, allowing for a limited market release during the fourth quarter. The cardiac monitoring patch is currently being tested in a hospital environment. Here again, the new FDA guidance is somewhat delaying regulatory clearance, although we still anticipate a full market launch later this year. Positive news was received in July regarding an 8% increase in the reimbursement rate from Medicare for our Telemetry offering (ACT) as of 2016. This should lead to improved revenues and profits of around USD 3.5 million in 2016. This change will further enhance our expected revenue growth for 2016 and beyond. Furthermore, we are on track to launch our cardiac monitoring business in the Turkish market in the first half of 2016 and are currently in the process of establishing the necessary organization and infrastructure to meet this goal. This is a first step in the global expansion of our remote cardiac monitoring services. Although these development activities, as well as other opportunities currently under review, involve significant costs in the short-term, we believe they are necessary to enhance our future growth and thereby remain a leader in this rapidly growing digital health market. Outlook LifeWatch stands by its full-year 2015 guidance. The company is continuing its efforts to update and grow its core business while at the same time launching new products and entering new markets. Dr. Stephan Rietiker commented: Our market growth and efficiency programs are progressing well and I am particularly excited about the prospects for our new products and of our new markets. We firmly believe that we are setting the stage for continued above average growth and increased profitability in the years to come. On behalf of the Board of Directors and the Executive Management Team, we would like to thank all our employees for their commitment and passion to shape the future of LifeWatch. We also thank our business partners as well as our patients for their loyalty and trust. And lastly, we thank you, esteemed shareholders, for your trust and support. Sincerely, Patrick Schildknecht Chairman of the Board Dr. Stephan Rietiker Chief Executive Officer 3

Financial Overview and Information for Investors Key figures (unaudited) unaudited, USD millions: H1 2015 H1 2014 Revenues 52.51 48.12 Gross Profit 27.75 25.09 As % of revenues 52.8% 52.1% EBITDA (LBITDA) 7.23 (1.52) As % of revenues 13.8% NA EBIT (LBIT) 3.81 (4.13) As % of revenues 7.3% NA Net income (loss) 1.94 (4.72) As % of revenues 3.7% NA Earnings (loss) per share (basic) 0.14 (0.36) Total fixed assets, net 16.22 13.02 Total assets 71.94 68.54 Total equity 39.04 34.82 As % of assets 54.3% 50.8% Net Cash Flow 0.02 (3.92) Employees 612 561 Investor Relations LifeWatch AG Andrew Moore, Chief of Staff Phone: +41 41 728 67 78 E-mail: investor-relations@lifewatch.com LifeWatch AG LifeWatch AG, Baarerstrasse 139, CH 6300 Zug Tel: +41 41 728 67 77, Fax: +41 41 728 67 70 Ticker Details ISIN-No.: 0012815459 SIX Ticker Symbol: LIFE Valor-No.: 1281545 Reuters: LIFE.S Further information on our website: www.lifewatch.com 4

Condensed Consolidated Financial Statements for June 30, 2015 Condensed Consolidated Balance Sheet June 30 2015 June 30 2014 December 31 2014 Audited Assets Current assets: Cash and cash equivalents 7,108 6,220 7,087 Restricted bank deposit 790 815 780 Accounts receivable (trade & other), net 13,857 13,962 12,335 Deferred income taxes 8,518 9,438 9,398 Inventories 2,487 1,758 1,973 Total current assets 32,760 32,193 31,573 Other non-current assets: Marketable securities 52 52 52 Deferred income taxes 4,684 6,807 5,217 Prepaid expenses and deposits 884 903 888 Total non-current assets 5,620 7,762 6,157 Property plant and equipment, net 16,224 13,025 14,922 Goodwill, intangible and other assets, net 17,335 15,557 16,332 Total assets 71,939 68,537 68,984 Liabilities and shareholders equity Current liabilities: Short-term loans 2,500 - - Current portion of long-term loans and other liabilities 2,328 1,961 2,296 Accounts payable and accruals (trade and other) 19,261 18,735 17,679 Provision for settlement 3,221 2,565 2,587 Total current liabilities 27,310 23,261 22,562 Non-current liabilities: Loans and other liabilities, net of current maturities 1,874 3,537 3,047 Accrued severance and other employee benefits 326 108 *323 Provision for settlement 2,838 6,061 5,512 Accrued expenses 555 755 *657 Total non-current liabilities 5,593 10,461 9,539 Total liabilities 32,903 33,722 32,101 Shareholders equity: Share capital, warrants, treasury shares, capital surplus and accumulated other compre-hensive income (loss) 148,992 148,710 148,781 Accumulated deficit (111,898) (109,170) (109,170) Net income (loss) for the period 1,942 (4,725) (2,728) Total shareholders equity 39,036 34,815 36,883 Total liabilities & shareholders equity 71,939 68,537 68,984 *Reclassified 5

LifeWatch AG Condensed Consolidated Statements of Operations (except share and per share data) ending June 2015 ending June 2014 Revenues 52,512 48,120 Cost of revenues 24,765 23,027 Gross profit 27,747 25,093 Research and development expenses 1,982 3,282 Selling and marketing expenses 9,453 12,501 General and administrative expenses 12,500 12,690 Legal settlements and other expenses, net - 751 Total operating expenses 23,935 29,224 Operating income (loss) 3,812 (4,131) Financial and other expenses net 443 204 Income (Loss) before taxes 3,369 (4,335) Tax expense 1,427 390 Income (Loss) for the period 1,942 (4,725) Weighted average number of shares outstanding used in computation of earnings (loss) per share (in thousands) Basic 13,404 13,255 Diluted 13,417 13,289 Earnings (loss) per share (USD) Basic 0.14 (0.36) Diluted 0.14 (0.36) Condensed Consolidated Statements of Comprehensive Income (Loss) (except share and per share data) ending June 2015 ending June 2014 Net Income (loss) 1,942 (4,725) Other comprehensive loss: Foreign currency translation adjustment - (2) Total other comprehensive loss - (2) Comprehensive income (loss) 1,942 (4,727) 6

LifeWatch AG Condensed Consolidated Statement of Changes in Shareholders Equity Paid in share capital including premium Warrants Accumulated deficit Capital reserve Treasury shares Accumulated other comprehensive loss Balance at January 1, 2015 (Audited) 149,518 - (111,898) 70 (370) (437) 36,883 Changes during the six months ended June 30, 2015 (): Net income for the period - - 1,942 - - - 1,942 Issuance of shares in respect of exercise of options granted to employees 211 - - - - - 211 Balance at June 30, 2015 () 149,729 - (109,956) 70 (370) (437) 39,036 Total Balance at January 1, 2014 (Audited) 147,024 1,063 (109,170) 70 (370) (171) 38,446 Changes during the six months ended June 30, 2014 (): Net loss for the period - - (4,725) - - - (4,725) Other comprehensive loss - - - - - (2) (2) Issuance of shares in respect of exercise of options granted to employees 1,067 - - - - - 1,067 Stock-based compensation expense 17 12 - - - - 29 Balance at June 30, 2014 () 148,108 1,075 (113,895) 70 (370) (173) 34,815 7

LifeWatch AG Condensed Consolidated Statement of Cash Flow ending June 2015 ending June 2014 Cash flows from operating activities: Net income (loss) for the period 1,942 (4,725) Adjustments required to reconcile net income (loss) for the period to net cash provided by (used in) operating activities: Income and expenses not involving cash flows: Depreciation and amortization 3,422 2,611 Compensation expenses charged in respect of options and warrants granted to employees and service providers - 29 Changes in deferred income taxes 1,413 7 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable, including non-current portion (1,518) 280 (Increase) decrease in inventories (514) 252 (Decrease) Increase in accounts payable and accruals: Provision for settlement (2,040) (1,267) Trade and other 1,483 34 Net cash provided by (used in) operating activities 4,188 (2,779) Cash flows from investing activities: Purchase of fixed assets (4,721) (2,339) Investment in intangible assets (1,006) (561) Restricted bank deposit (10) (3) Net cash used in investing activities (5,737) (2,903) Cash flows from financing activities: Issuance of shares in respect of exercise of employee stock options 211 1,067 Obligation under capital lease undertaken, net (1,141) 624 Proceeds from short term loans undertaken 2,500 - Discharge of long term loans - (16) Net cash provided by financing activities 1,570 1,675 Translation differences on cash balances of subsidiaries - 91 Increase (decrease) in cash and cash equivalents 21 (3,916) Balance of cash and cash equivalents at beginning of period 7,087 10,136 Balance of cash and cash equivalents at end of period 7,108 6,220 Supplementary disclosure of non-cash-activities Capital leases of fixed assets 0 1,242 8

LifeWatch AG Notes to Condensed Consolidated Half Year Financial Statements Note 1 BASIS OF PRESENTATION The unaudited condensed consolidated half year financial statements for LifeWatch AG and its subsidiaries (the Company ) have been prepared on the basis of accounting principles generally accepted in the Unites States of America ( US GAAP ) for interim financial information. Accordingly, such financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2014. Note 2 PROPERTY PLANT AND EQUIPMENT a. Composition of assets, grouped by major classifications, is as follows: June 30, 2015 June 30, 2014 December 31, 2014 Audited Cost Manufacturing and peripheral equipment 12,291 11,670 11,848 Office furniture and equipment 3,027 2,737 2,924 Monitoring units 26,577 20,167 23,359 Motor vehicles 17 161 161 Leasehold improvements 1,537 1,521 1,576 Total costs 43,449 36,256 39,868 Less accumulated depreciation and amortization 27,225 23,231 24,946 Total 16,224 13,025 14,922 b. Depreciation expenses in respect of fixed assets totaled USD 3,419 thousand USD 2,608 thousand and USD 5,643 thousand for the six months ended June 30, 2015, June 30, 2014, and for the twelve months ended December 31, 2014, respectively. Note 3 SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in four reportable operating segments: Sales of Systems Development, manufacture and marketing of trans-telephonic and wireless diagnostic equipment for the medical industry. Mobile Health (formerly LifeWatch V) Mobile medical device platform designed for self-testing of vital signs for the consumer market. Services Cardiac event monitoring, pacemaker, ambulatory heart monitoring and sleep disorder services. Other Company activities and expenses that are not assigned directly to either of the above segments. 9

LifeWatch AG The table below presents information about reported segments: Sales of Systems Mobile Health Services Other Reconciling items Consolidated total For the ended June 30, 2015 (): Revenues from external customers 165-52,347 - - 52,512 Inter segments revenues 8,270 - - - (8,270) - Total 8,435-52,347 - (8,270) 52,512 Operating income (loss) 4,018-4,583 (3,125) (1,664) 3,812 Depreciation and amortization 255-9,044 18 (5,895) 3,422 Goodwill - - 14,976 - - 14,976 Capital investments 393-11,682 11 (7,365) 4,721 Total assets 106,338-83,611 2,385 (120,395) 71,939 For the ended June 30, 2014 (): Revenues from external customers 1,400 20 46,700 - - 48,120 Inter segments revenues 5,951 2 - - (5,953) - Total 7,351 22 46,700 - (5,953) 48,120 Operating income (loss) 2,755 (4,576) 926 (3,295) 59 (4,131) Depreciation and amortization 176-7,957 - (5,522) 2,611 Goodwill - - 14,976 - - 14,976 Capital investments 385-8,381 16 (5,202) 3,580 Total assets 102,072-84,884 2,717 (121,136) 68,537 The table below shows revenues classified by geographical location of the customers and property plant and equipment, net classified by geographical location of assets: Revenues Property plant and equipment, net For the ended June 30, 2015 (): United States and Canada 52,347 14,756 Europe 11 254 Asia 154 1,214 Total 52,512 16,224 For the ended June 30, 2014 (): United States and Canada 46,700 11,923 Europe 31 118 Asia *1,389 *984 Total 48,120 13,025 *Reclassified 10